Dividend Money for Self employed
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Thread: Dividend Money for Self employed

  1. #1
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    Dividend Money for Self employed

    Hi

    If I get some Dividend Money as Self employed besdies to regular salary I withdraw,can my contrubutions to RRSP from total of both(Dividend +Salary) or salary portion only?

    Apprciate response!
    AK


  2. #2
    Senior Member FrugalTrader's Avatar
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    Yes you can use dividend money to contribute to your RRSP.
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    Thanks!

  4. #4
    Senior Member MoneyGal's Avatar
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    I could be wrong, but I understood the question as, "is my RRSP contribution limit based on my salary only, or is it based on my salary plus the dividends I withdraw from my business?"

    If that's the question, the answer is that dividends are not included in the calculation of earned income for determining your RRSP contribution amount. This is something that self-employed people need to be aware of - if you minimize salary amounts (to minimize tax payable), you minimize RRSP contribution room. (This does not necessarily affect your tax-sheltering opportunities, though...)

    However. If I misunderstood the question, just ignore this post.

  5. #5
    Senior Member FrugalTrader's Avatar
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    Quote Originally Posted by MoneyGal View Post
    I could be wrong, but I understood the question as, "is my RRSP contribution limit based on my salary only, or is it based on my salary plus the dividends I withdraw from my business?"

    If that's the question, the answer is that dividends are not included in the calculation of earned income for determining your RRSP contribution amount. This is something that self-employed people need to be aware of - if you minimize salary amounts (to minimize tax payable), you minimize RRSP contribution room. (This does not necessarily affect your tax-sheltering opportunities, though...)

    However. If I misunderstood the question, just ignore this post.
    Now that I re-read the post, I think you might be right MG.
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  6. #6
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    Hmm, so if you are self employed is there something stopping you from "paying" yourself entirely with a company dividend? Wouldn't the benefit of much lower dividend tax rates outweigh the loss of RRSP contribution room?
    I'm probably missing something. That must be illegal.. seems too simple.

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    A salary is paid from pre-tax income for the corporation, whereas dividends are paid from after-tax corporate income. Also, you should probably at least pay yourself up to the basic personal amount, since the marginal tax rate (not counting payroll taxes) is zero.

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    Peter, if you are the owner of the company, calculating the total tax, there is no tax difference between paying yourself a dividend or salary. As Andrew stated, salary is counted as a corporate expense, thus no tax at a corporate level, but full at a personal level. However, dividends are paid with after tax corporate dollars, but lower personal dollars.

    The biggest thing with paying a salary is the mandatory CPP contribitions from the company and the employee.
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  9. #9
    Senior Member MoneyGal's Avatar
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    Yes FT! Is this a good spot for me to say I really do not support the idea of mandatory increased contributions to the CPP? 'Cause I don't.

  10. #10
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    I'm not sure I understand the OP's question, but when has that ever stopped me?

    The OP can use a dividend to pay into a RRSP, but the amount that can be contributed depends on earned income i.e. not dividends. Also, the tax treatment of dividends from a canadian controlled private corporation, which seems to be the case here, is much different than dividends from a public Canadian corporation. Because the small business tax rate is so low, the corresponding "gross up" (and tax advantage) is much less. See www.taxtips.ca/dtc/smallbusdtc.htm

    If the OP paid himself with dividends only from his corporation, then alternative minimum tax may be a consideration. Because the small business tax rate is so low, dividends-as-salary may yield lower tax than salary alone i.e. Revenue Canada wouldn't be happy.

    Last edited by Larry6417; 2010-06-13 at 09:43 PM. Reason: duplicate URL, grammar

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